RBI warns Centre against fiscal boost to economy

RBI warns Centre against fiscal boost to economy
As the government prepares for a stimulus package to reduce the impact of economic slowdown, the RBI on Wednesday warned of the consequences of such an action.

“Given that the general government fiscal deficit is already in the region of 6% of GDP, our national stance can hardly be described as tight. We should be very cautious lest fiscal actions undercut macroeconomic stability,” said RBI Governor Urjit Patel while addressing a press conference after a review of the monetary policy.

The governor was replying to a question on his views about the likely stimulus package and its fiscal impact.

Patel said the possibility of fiscal slippage by the Centre and states may add to the already building momentum in prices of goods.

Separately, the Monetary Policy Committee (MPC) statement said the farm loan waiver by states and states implementing revised salary and housing allowances following the 7th pay commission awards were the factors that would fan inflation in coming months and lead to fiscal slippage.

“The implementation of farm loan waivers by states may also result in possible fiscal slippages and undermine the quality of public spending,” the MPC statement said.

The Centre was planning to handout sops to certain sectors such as exports and Micro, Small and Medium Enterprises (MSMEs) that had been impacted by the implementation of GST and demonetisation.

The economy hit a four-year low of 5.7% in the April-June quarter which also led to job losses.

The move prompted the government to plan for some economic stimulus to propel growth before the 2019 general elections.

These sectors could expect some relief as early as Friday when the GST Council holds its crucial meeting. Some relief could also come through the Union Budget to be presented in February.
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